Global Labor Strategies

Today’s Economic Crisis in Historical Perspective

The superlatives of the global economic meltdown of 2008 are, well, superlative.  Professor Noriel Roubini of New York University says the current crisis is “the largest leveraged asset bubble and credit bubble in history.”  The International Monetary Fund says, “In advanced economies, output is forecast to contract on a full-year basis in 2009, the first such fall in the post-war period.”  

The crisis of 2008 is frequently compared to past crises, and increasingly to the stock market crash of 1929 and the Great Depression of the 1930s.  Merrill Lynch Chief Executive John Thain recently said he does not expect the global economy to recover quickly from the credit crisis and that the environment more closely resembles the advent of the Great Depression in 1929 than recent slowdowns.  Long-forgotten images of breadlines and homeless families have sprouted in the media.  60 percent of US voters polled in October said another depression is likely within a year.

Such historical comparisons can help provide perspective on contemporary situations, but they can also be misleading if they don’t include the differences as well as the similarities.  For labor and social movements, there is much to learn at this time of crisis from crises past.  But there are also significant differences which we ignore at our peril – and which may allow us opportunities for action that did not exist in the past.   

Character and extent of the current crisis

A few statistics give a flavor of the depth of the current crisis. 

According to Reuters, between January and September, 2008, the stock market index for “emerging markets” lost nearly 55 percent of its value and the index for “developed markets” lost 42 percent.  The S&P 500 of US stocks lost half its value from its October, 2007 peak, marking what the Financial Times calls "without question, the worst bear market since the 1930s."  It adds that "the only historical precident for the kind of deflation predicted by the bond market came in the 1930s."

Ten million Americans are out of work, nearly 3 million more than a year ago.  The official unemployment rate rose to 6.5 percent in October, its highest rate in 14 years.  Goldman Sachs predicts it will reach 9 percent in 2009.

7.3 million American homeowners are expected to default on their mortgages between 2008 and 2010, with 4.3 million of those losing their homes. As of September 30, one-fifth of American homes with mortgages were “underwater” -- worth less than was owed on their mortgages.

National and global efforts to counter the crisis have included cuts in interest rates, support for money markets, and recapitalization of banks.  Their total cost as of mid-November has been estimated at more than $4 trillion.

Economists predictions – for whatever they’re worth – have lost their once-unmitigated optimistic faith in the economic system.  Martin Wolf of the Financial Times says that despite government efforts, “a long and deep global slowdown is still likely.”  James Kwak of Baseline Scenario says “Wealth is likely to decline further.  Under any scenario, we will see many personal, corporate and perhaps even national bankruptcies.”  Kenneth S. Rogoff, a former chief economist at the IMF and now a Harvard professor adds, “We’re entering a really fierce global recession.  . . .  It’s a very dangerous situation.  The danger is that instead of having a few bad years, we’ll have another lost decade.”

What’s precedented

Capitalism has been the most dynamic economic system in history, but it has a peculiarity:  No matter how great the need for houses, clothes, food, or other products, those who control the means of production won’t produce them unless they can make a profit doing so.  As a result, the history of capitalism has been marked by periods of economic crisis and stagnation in which millions of people suffered unemployment and poverty while the resources that they could have used to produce the things they need lay idle. 

These periods can be long or short, modest or severe.  Capitalist economies have a regular business cycle in which every decade or so economic growth is punctuated by recession.  These can be little more than periods of readjustment that allow a return to growth – part of what the economist Joseph Schumpeter called capitalism’s “creative destruction.”  Some other contractions, however, also stabilize – but at levels that result in massive unemployment of material and human resources.  Such a peculiar state of affairs is possible because markets are regulated only by the pursuit of private profit, not by a matching of resources and human needs.  If production isn’t profitable, the wealthy individuals and institutions who own the means of production have no incentive to produce. 

Since 1900, the US experienced depressions and recessions in 1903, 1907, 1911, 1914, 1921, the whole decade of the 1930s, 1949, 1954, 1957, 1961, 1970, 1982, 1990, and 2002. 

The “gold standard” for economic downturns remains the Great Depression of the 1930s.  From 1929 to 1933, manufacturing output in the US dropped 39 percent and unemployment reached 25 percent.  In the 1982 recession, U.S. unemployment reached 10.8%, the highest since World War II.  In the Asian crisis that started in 1998, 20 million people in Indonesia lost their jobs in a year as the unemployment rate rose from less than 5 percent to more than 13 percent, and the population living in absolute poverty quadrupled to a hundred million.

The G-20 vs. the G-6 Billion

The message from last weekend’s G-20 summit meeting on the global economy must be a parody of Samuel Beckett’s Waiting for Godot:  The game can’t go on.  The game must go on.

In the face of the worst financial crisis since the Great Depression, European leaders had flirted with the idea of actually trying to change something.  French President Nicolas Sarkozy said, "Laissez-faire, it's finished.  The all-powerful market that is always right, it's finished."  As a result, it is necessary to rebuild the entire global financial and monetary system from the bottom up, “the way it was done at Bretton Woods.”

British Prime Minister Gordon Brown pointed out a deep contradiction of capitalist globalization:  “We now have global financial markets, global corporations, global financial flows.  But what we do not have is anything other than national and regional regulation and supervision.”  We need “a global way of supervising our financial system.”  He called for “very large and very radical changes,” including turning the IMF into a “global central bank.”

But the Bush administration soon put an end to such wild talk.  “This meeting is not about discarding market principles or about moving to a single global market regulator,” a White House official said.  “There is very little support for that.” 

Indeed, as the leaders of the G-20 countries were winging their way to Washington, Bush announced, “The crisis was not a failure of the free-market system, and the answer is not to try to reinvent that system.”  It would be a “terrible mistake” to allow “a few months of crisis” to undermine faith in free market capitalism.

Astonishingly, no one seemed to disagree.  In the midst of the worst financial crisis since the Great Depression, the leaders of 20 countries gathered in Washington and produced not an agreement to act, but a declaration of principles.

The declaration itself is extraordinarily vacuous, even by the standards of international summits, given that their system (not to mention the livelihoods of billions of people) are at risk.  Their “common principles for reform” are things like “Strengthening Transparency and Accountability,” “Enhancing Sound Regulation,” and “Promoting Integrity in Financial Markets.”  No corporation or investor need lose much sleep over “commitments” like:  “We pledge to strengthen our regulatory regimes, prudential oversight, and risk management, and ensure that all financial markets, products and participants are regulated or subject to oversight, as appropriate to their circumstances.” 

It was eerily reminiscent of another such international gathering, the London Monetary and Economic Conference of 1933.  Sixty nations sent high-level representatives to London to forge a solution to the Great Depression.  Each came with proposals, some of them potentially effective, for halting the downward spiral in which they were all engulfed.  But each was deeply suspicious of the others’ proposals, seeing them as primarily means to advance their proponents’ national interests at the expense of others.  Finally, US President Franklin Roosevelt rejected the agreement his own representatives had negotiated and the conference broke up in shambles.  Trade wars and competitive devaluations followed apace. 

EVERY MAN FOR HIMSELF
The G-20’s failure to accomplish anything is being attributed to the Bush administration’s lame duck status – everything must grind to a halt until Obama’s inauguration ends the “interregnum.”  But the real problem is deeper than that.

In a whirlpool of “deleveraging” and deflation, many fortunes are going to be lost – through bankruptcy, insolvency, plunging stock values, and the like.  Every national and international policy can affect whose capital is to be gored.  If the Big Three US auto companies can persuade the government to give $25 billion from the bank bailout to them, the auto companies will be $25 billion richer -- and the banks $25 billion poorer.

Things Fall Apart

The bill has finally come due for decades of reckless economic policies and utter disregard for the planet. We are now confronted with two intertwined crises of historic proportions—one economic and one environmental.

The economic crisis, which has been smoldering for more than a year, caught fire when the US housing bubble burst nearly taking the entire global financial system down with it. The financial crisis quickly morphed into a general global economic meltdown. The OECD reports that taken as a whole, its 30 country membership—representing the leading economies in the world—is in recession. China’s growth rate is at a 7 year low. Middle income and developing countries are being swept up in the chaos as commodity prices fall and capital flees to safer havens. 

Efforts to avert a climate catastrophe—already fraught with difficulty-- have been made even more difficult by the economic crisis. The immediate steps to achieve the needed reductions in greenhouse gasses will likely cause economic disruptions in parts of the economy, precisely at a time when political will may be flagging. Public money is scarce, private funding is drying up. The only silver lining: as the crisis worsens and unemployment rises, refitting the built environment and shifting to low carbon energy could be a source of employment and an engine of economic growth for decades.

A central problem in dealing with the crises is that markets are global while regulatory regimes and the politics that shape them are national. But no nation—not even the US which remains the richest and most powerful in the world—can address either the economic or the climate change crises on its own.

Averting disaster will require an unprecedented degree of international cooperation to deal with the tangle of vested national economic and political interests. That is why this week’s pledge of coordinated global action by the G-20, which we will analyze in a later post, is short on substance and long on rhetoric.

Traditional national Keynesian stimulus programs, currently proposed by many politicians across the political spectrum, can provide much needed employment for those out of work, but will not work as planned to revive economic growth. These policies were devised during a period of national capitalism very different from today’s global economy.  Keynesian job creation projects are intended to provide the jobs and spending power to increase the consumption of what are assumed to be nationally produced goods and services thus priming the economic pump.  But in globalized economy consumers are just as likely to purchase goods produced abroad, reducing the impact of any stimulus package on national employment.

There is an additional problem with traditional Keynesian programs. Historically, these programs were indifferent to the types of jobs created as long as they created spending power. But today, strict attention must be paid by any job creation programs to the kinds of jobs created to insure that they do not contribute to global warming or they risk dealing with one crisis by intensifying another. What is needed is global stimulus program that focuses on sustainable economic growth if we are to mitigate the effects of the current crises.

A Letter from Europe: Labor at Malmo

The European Social Forum held in Malmo, Sweden from September 17-21 marked another step in the reappraisal by European trade unions of how to approach the neo-liberal policies of the European Union. The Forum featured a vigorous and productive debate on new directions for labor among traditional unions, the alternative labor movements, and allied social movements.

The debate could not come at a more opportune time. As the impact of the global economic crisis spreads throughout Europe, labor movements can not expect that the so-called European Social Model will protect workers from its consequences. That model, which emerged in the decades following WWII, was characterized—with national differences—by a generous welfare state, collective bargaining, and more or less full employment. It was the result of a tripartite “social partnership” between trade unions, employers, and the state.  But the reality is that, today, even before the crisis fully envelops the continent, you can barely recognize many of the model’s traditional elements. And yet while trade unions increasingly realize that the European Social Model has been undermined, they still tend to look back to the model as strategy for the future.

Neo-liberal Europe

But the good old days are gone. Today, the fundamental goals of the European Union are guided by the principles of neo-liberalism. Collective social programs such as health insurance, pensions, and educational systems have become partially privatized in some countries as politicians seek to open new markets to private capital. “Precarity” of work now extends to the entire life of an increasing number of workers. And collective bargaining is under direct attack by many European institutions. For instance, in the last two years, the European Court of Justice ruled on cases –filed by both corporations and the European Commission itself—which, while acknowledging that fundamental labor rights such as the right to strike and the right to collective bargaining exist in Europe, also ruled that they are less important than the right to freely compete by the employers. And the EU is just about to approve a new Directive (the term for European laws) which not only allows companies to increase working time to more than 60 hours per week, but also introduces individual bargaining in place of collective bargaining on this issue.

On migration there is a dual strategy: on the one hand, with the "Blue Card Directive”  the EU is promoting access to Europe by highly skilled and educated workers. On the other hand, policies toward undocumented workers are becoming increasingly xenophobic, legitimating current laws in some member states by “regulating” detention for up to 18 months as well as allowing repressive “deportation” policies.

Overall, conditions for workers in Europe are worsening. According to official EU statistics—which in many cases are underestimates—around 8% of all employees in the European Union are officially registered as unemployed. More than 16% of the EU population, that is 72 million EU citizens, are currently considered at the risk of poverty (with an income below 60% of the median income in their country). Furthermore, since the 1980s real wage increases are no longer in line with productivity growth and the wage share (the workers income in relation to the overall national income) has declined in almost all European countries. (see European Commission, European Economy, Statistical Annex, 2006. 

A developing discourse

Many trade unions are increasingly becoming open critics of neo-liberal Europe, and the European labor movement is trying to find ways to respond to the attacks that it is now under. This includes the European Trade Union Confederation (ETUC), which is the formal representative of trade unions within the EU’s tripartite structure and which is deeply enmeshed with the bureaucracy which runs the EU. They formally support both the Lisbon Treaty—the latest attempt to redesign the institutional and political framework of the EU along neo-liberal lines, and the aggressive free-trade agenda of the EU Commission (see Global Europe Competing in the World).